Problem (10 points). An audit team is auditing Ravens Textile Company. One of the account balances...

 

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Problem (10 points). An audit team is auditing Ravens Textile Company. One of the account balances that must be tested is the amount charged to cost of goods manufactured for the year. During the year, the company produced 2,500 production lots with a total recorded book value of $6,750,000. The auditors have selected a sample of 250 production lots to test with an aggregate book value of $800,000. After vouching the costs back to the appropriate supporting documentation for this sample, they found a total of 45 misstatements. After adjusting for these misstatements, the audited book value of the sample is $675,000. REQUIRED (1) Calculate the auditor's estimate of the total cost of goods manufactured for the year, using each of the following sampling plans listed below. Be sure to show all calculations used to arrive at your answer. Round all decimal calculations to five decimal places and all dollar amounts to the nearest dollar. (a) Mean per unit estimation. (b) Ratio estimation. (C) Difference estimation. Which estimation method gives the higher estimate of total cost of goods manufactured for the year based on your calculations in (1) above, mean per unit estimation or ratio estimation? Why? (2) Problem (10 points). An audit team is auditing Ravens Textile Company. One of the account balances that must be tested is the amount charged to cost of goods manufactured for the year. During the year, the company produced 2,500 production lots with a total recorded book value of $6,750,000. The auditors have selected a sample of 250 production lots to test with an aggregate book value of $800,000. After vouching the costs back to the appropriate supporting documentation for this sample, they found a total of 45 misstatements. After adjusting for these misstatements, the audited book value of the sample is $675,000. REQUIRED (1) Calculate the auditor's estimate of the total cost of goods manufactured for the year, using each of the following sampling plans listed below. Be sure to show all calculations used to arrive at your answer. Round all decimal calculations to five decimal places and all dollar amounts to the nearest dollar. (a) Mean per unit estimation. (b) Ratio estimation. (C) Difference estimation. Which estimation method gives the higher estimate of total cost of goods manufactured for the year based on your calculations in (1) above, mean per unit estimation or ratio estimation? Why? (2)